Progress in Automation

Just as a mountaineer ascends Mt. Everest one step at a time, so goes the march to an electronic financial supply chain. For banks and third-party solution providers attempting the ascent, the risks are high and the odds of immediate success are low. The long-term rewards, however, look rich. Companies are beginning to put one foot in front of the other. The adoption of e-payments in business-to-business transactions will pick up over the next five years. By 2009, the scale will tip in favour of e-payments with their share of business-to-business transactions in North America reaching half.

Currently, however, the e-payments environment smacks of a chicken-egg syndrome: until more companies demand an e-payments solution, banks and technology providers are slow to provide one, and vice versa. The actions of several technology providers, consortiums, banks, and pioneering corporations are auspicious, however. The syndrome will not be long-lasting. The drivers of adoption include both collaborative and competitive forces and players outside the banking realm. The era of banks moulding payment systems alone is over. Next-generation payment systems will be structured with corporations' needs in mind and will be influenced by technology providers as well as banks.

THE ASCENT OF THE E-FINANCIAL SUPPLY CHAIN MOUNTAIN

Critical in the ascent of the e-financial supply chain mountain is the development and implementation of payment messaging standards and the alignment of economic gains. Once standards are in place, competitive forces will take over and lead to the launch of value-added products and services that leverage the standards.

Although the win-win of standards ensures their development and adoption, stakeholders with proprietary systems face risks and potential losses. Banks in particular have much to lose if they do not figure out how to harness the potential wins and mitigate the potential losses. Any bank that wants to stay in the treasury game will eventually adopt standards, embrace open payment systems, consolidate its payment infrastructure, and redefine its value propositions.

Banks are not the only key 'supply' provider. The role of technology, and consequently third-party providers, in the adoption of e-payments will be profound. As confirmed by several surveys, the prerequisite for the migration to e-payments is automation of the financial supply chain— in particular electronification of rich remittance data. Until the activities that precede payment are automated, e-payment is unlikely.

PIONEERING E-FINANCIAL SUPPLY CHAIN MOUNTAINEERS

There are several mountaineers that are guiding companies to the e-financial supply chain summit. These technology providers and banks have the drive to summit and importantly are building the gear to realize reach it.

They are responding with electronic invoice presentment and payment applications (e.g., Avolent), electronic procure-to-pay networks (Xign and USBank PowerTrack), purchasing cards (p-card) integrated into the financial supply chain (JPMorgan), and payment/ERP system integration (e.g., ABN-AMRO and Deutsche Bank). In addition, consortiums comprised of corporations, banks, and technology providers are paving the way for standards development and implementation.

Leading torchbearers for next-generation, XML-based standards for payment-related transactions include TWIST, an acronym with a subtle message (Treasury Workstation Integration Standards Team) and SWIFT. In the realm of remittance-related standards and transport protocols, RosettaNet stands out as a pioneer. TWIST and RosettaNet have proved to be effective and nimble, successfully bringing together representatives of all interested parties—from financial institutions to corporations and technology providers—and leading the charge to fulfil their member corporations' needs.

P-CARD INTEGRATION

Mountaineers excelling in p-card integration are: MasterCard e-P3, Bank of America's ePayables Solution, JPMorgan's PaymentNet, and GE's vPayment. These initiatives build electronic bridges between a company's purchasing card system and its general ledger, accounting, ERP, and/or procurement systems. As a result a company is able to share transaction data across its systems and thereby can accelerate reconciliation and improve reporting. These enhancements are allowing companies to raise transaction limits over $5,000 and increase their volume of electronic transactions.

MasterCard e-P3 adds the muscle of MasterCard Global Data Repository (for Level III data), MasterCard SmartLink (ERP and accounting system integration) as well as MasterCard's Smart Data Online. The first version of MasterCard e-P3 utilizes the Xign Payment Services Network. Recently, MasterCard integrated e-P3 with its RPPS network (an electronic bill payment service for consumers) to enable business-to-business payments. Key features of the service include biller directory and transaction data (remittance) management services.

ASCENDING BANKS

Banks that merit a spotlight for their ascent include ABN-AMRO, JPMorgan Chase, and US Bank. US Bank stands out for making a solo ascent by building its own buyer-centric order-to-pay solution, aptly called PowerTrack. PowerTrack stands out for several reasons. First, it is one of the few bank-sponsored and owned solutions that is profitable. Second, its genesis in 1997 makes it by far the earliest mover in the buyer-centric solution market. Third, PowerTrack has extended its features and functionalities across the entire financial supply chain. It brings both buyer and seller to the table by extracting data from their relevant systems into a single data repository with secure access.

ABN AMRO is another prime example of a bank taking a proactive position. It realized early on that integration, automation, and information are where its future lies in treasury services. Over the past five years, it has invested heavily in building bridges, making the bet that its value proposition would resonate, and the results have borne this out through client wins (their customer volume has tripled and demand continues well ahead of overall industry growth rates). Among its accomplishments is building MaxTrad (a highly regarded global trade portal) and AccessOnline (an online cash management service, which includes cross-border STP).

Equally important to its financial supply chain infrastructure are the electronic bridges ABN AMRO has been building between its systems and its customers' vital organs, including treasury management and ERP systems, thereby successfully increasing STP rates. AccessDirect can be accessed from SunGard eTreasury Exchange as well as from XRT and Trema treasury workstations as well as ERP systems such as SAP and Oracle. In addition, it has adopted messaging standards to facilitate transactions and lower costs.

JPMorgan merits mention for its strategic partnership with Xign, which has resulted in JPMorgan Chase Order-to-Pay Service. Its ambitions stand out for extending beyond payment to credit, specifically supplier financing. JPMorgan spied an opportunity to offer supplier financing in the form of innovative discount management services that eradicate the inefficiencies inherent in traditional discounting. Instead of investing resources and time in developing the prerequisite invoice-processing engine, JPMorgan teamed with Xign. Xign's e-payables solution assures swift invoice processing (within the 10-day window of most discount terms) while JPMorgan enables early payment through its supplier discount management services.

The market for e-payable solutions is in a nascent stage with demand just starting the ascent. The green field opportunity is vast, but it's not forever. In ten years, this green market will be mature. Most companies will use e-invoices and e-payments. Banks and other third parties must act soon to establish a long-run position because early movers who reach the summit first will likely sustain an advantage based on their track record. Their flag at the summit will be hard to displace.